November 3, 1993
Economic conditions in the First District continue to improve gradually. While retail sales results are mixed, demand for manufactured goods has risen from a year ago, and residential real estate sales volume is up. Inflation reportedly remains low because of competitive pressures and soft input prices.
Retail
First District retail sales have varied widely in the last six
weeks. Several chains report sales declines of up to 3 percent,
notably in apparel and, more recently, in food. By contrast, some
specialty and catalog stores, particularly those catering to the
higher end of the market, cite significant sales increases since
mid-summer. Some growth in sales of major appliances and building
materials has led retailers to believe that homebuying in the region
is picking up.
Established retailers express concern over the changing competitive landscape, as large discount stores step into the New England market, attracted by the availability of space and less prohibitive costs in the region's malls. The increased competition has put downward pressure on prices, margins, and profits. Employment levels are relatively stable and wage increases are said to be modest.
Seeing the market as unpredictable, most retailers describe their capital spending plans as limited. Holiday sales growth this year is expected to range from 0 to 10 percent-not as robust as last year.
Manufacturing
Most First District manufacturing contacts report that demand has
risen from year-ago levels. Some firms have been able to achieve
double-digit rates of sales increase by introducing new products or
expanding their customer base. Suppliers to the automotive industry
report that year-over-year demand has risen by up to 10 percent.
Contacts in the pharmaceutical and semiconductor industries report
sales increases in the range of 6 to 10 percent, while a variety of
other business and consumer goods manufacturers indicate increases
of 0 to 5 percent. Computer manufacturers report declining sales
from a year earlier, which they attribute to competitive markets and
weak demand from Europe.
Widespread competitive pressures and soft prices for inputs including petrochemicals, photochemicals, and copper are responsible for a low inflation environment for most manufacturers. Contacts report that automakers are demanding yearly price decreases from suppliers. Several respondents indicate that the paper industry is trying to raise prices 2 to 7 percent, but they expressed some doubt about whether the increases would stick.
Over the past year, most manufacturing contacts report employment changes in the range of -3 to +5 percent. Some large companies have implemented sharper reductions. Looking ahead, just over one-half of the manufacturing respondents plan to maintain or slightly increase the size of their work force. Companies that have experienced sizable employment cutbacks foresee a diminished rate of shrinkage.
Close to one-half of First District manufacturing contacts plan to maintain a constant level of capital spending over the next year. A similar number intend to increase investment, in response to rising demand for automotive or other products, or to improve efficiency. Same respondents will allow capital spending to taper off, after a large increase in 1993.
Residential Real Estate
The residential real estate market has shown strong growth in sales
volume over the last couple of months in many parts of the First
District. Contacts in Maine, Massachusetts, and New Hampshire all
report that single-family home sales in August and September were at
least 15 to 20 percent above year-earlier levels, with the strongest
increases in areas that were hardest hit by the downturn. Rhode
Island and Connecticut reportedly lag the other states, but still
show positive sales growth. New construction has grown modestly
across the region.
Although prices, after accounting for the mix of properties, were mostly flat, a couple of contacts noted that prices in particularly desirable suburbs of Boston seem to be rising. Connecticut home prices, while still falling, are expected to bottom out within two quarters.
Nonbank Financial Services
Insurance companies report mixed results in the third quarter.
Strong sales were reported in variable annuities and mutual funds,
reflecting the low interest rate environment and the performance of
the stock and bond markets. Pensions, group life, and health sales
are flat or down according to most respondents. A majority of
contacts have either reduced employment in the third quarter, or
plan reductions in the rest of the year.
The Outlook
The New England Economic Project (NEEP), a nonprofit forecasting
group, released its semi-annual regional forecast in late October.
NEEP projects that total New England employment at the end of 1993
will be about even with its level of a year earlier, followed by
modest growth in 1994. The projected job growth will be concentrated
in services and construction, which have been expanding already.